student loans home market

Do Student Loans Hurt the Housing Market?

Michael Lux Best Of, Blog, Student Loans 0 Comments

It would seem the answer to this question is an obvious yes.  More people have student debt, the average amount of student debt has gone up, and buying a home with lots of debt is very difficult.

The numbers would appear to back up this notion.  If we look at student debt today and compare it with 2007, the numbers are staggering.  Today, the average borrower has approximately $33,000 in student loans.  Even when adjusting for inflation, that is an increase of 32% from 2007.  With more borrowers and higher average debt, the total student debt for the country has doubled since 2007.  That is an increase of over 500 Billion in student debt.

Student Loans Don’t Hurt the housing market?

Though it seems obvious that this would hurt the housing market, there are some reasonable arguments that the student debt bubble and weak housing market are not related:

  1. The first argument is that people are waiting until later in live to marry, have kids, and enter adulthood.  Therefore, the need to buy a house as a recent grad is much lower.
  2. Buying a home right now is hard for everyone, not just student borrowers.  Housing prices have started to inch buck up from the recession lows, but wages remain stagnant.  Additionally, in the wake of the recession and mortgage crisis, lenders are using far more caution than they did in the past, and as a result getting a home is far more difficult for everyone, not just those with student loans.

However, the logic behind both of these arguments fails.

What is wrong with these arguments?

Let’s first look the argument that people can buy houses, but they are just waiting on the home purchase, marriage and kids.  The fallacy here is that the argument assumes that people are waiting on these major life steps by choice.  For many, kids, marriage, and a home are delayed because of student loans.

[Further reading: Five ways student loans are a drag on grads and the economy]

Second, we have the argument that the housing market sucks for everyone.  While this is true, the conservative nature of lenders means they are very careful lending to people with a lot of debt.  Credit card debt and auto debt have all been on a downward trend; meanwhile student loans continue to grow.  Because student debt is often so large and takes so long to pay off, it presents extra challenges to potential buyers.  Just because it is challenging time to buy a home does not mean that student loans do not present and extra challenge to buying a home.

Is it even possible to buy a home with student loans?

Despite the challenges that having student loans present, buying a home is still possible.  If you are a student loan holder thinking about buying a home, be sure to check our our guide to home buying with student loans.